Disputes are an inevitable consequence of running a business. If you’re a small and medium enterprise (SME) operating in the UAE, there are several steps – both formal (legal) and informal (non-legal) – that you can take to minimize the impact of and find effective resolution to business conflicts.

According to Bianca Gracias, general counsel and director at Dubai-based advisory firm Suits & Advisors, the most common disputes faced by SMEs in the UAE stem from payment-related issues, either non-payment, delayed payments or change in payment terms.

These are followed by employee- and labor-related disputes and disputes with suppliers or contractors for common issues like defects or damage in products, variations in orders and late deliveries and completion dates.

“With the onset of the digital age and popularity of social media, issues surrounding data protection, privacy and consumer protection are gaining widespread concern and I foresee a lot of traction in these areas,” she said.

Gracias added that disputes could also come from the lack of awareness regarding rights and obligations between parties.

“A lot of disputes could be avoided entirely, if contracts were well-drafted for each transaction, parties understood the laws applicable to them, clearly agreed their rights and obligations before transacting and if their contracts addressed the ‘what-if’ scenarios, i.e. remedies for breach of contract,” she noted.

Dispute resolution processes

Andrew Greaves, head of GCC at international corporate law firm Addleshaw Goddard, said there are two types of recourse available to SMEs looking to resolve a dispute.

Legal

“In terms of legal recourse in the UAE, there are a number of options for SMEs. There are the UAE onshore courts, whether that be Dubai, Abu Dhabi or another emirate. Those jurisdictions operate under a civil law system, are conducted in Arabic and only local advocates have rights of audience before the courts,” Greaves explained.

UAE also has two offshore financial center courts that apply common law, based on English law, with sessions conducted in English before local and international judges. Greaves said SMEs are free to instruct any lawyer meeting the minimum standards of those courts.

“Importantly, one of these, the DIFC Courts, have a very successful Small Claims Tribunal where claims of up to AED 500,000 [USD 136,000] can be heard and resolved. This is a low-cost way of settling a relatively smaller claim as neither party is permitted to have legal representation during the process,” he said.

In addition, the country has several arbitration centers and renowned arbitrators.

Non-legal

“In terms of non-legal recourse, there is an ever-increasing number of options,” said Greaves. “Onshore, there is the Dubai Centre for Amicable Settlement of Disputes and summary courts for the appointment of experts. The benefit mediators can bring to a dispute means that mediation is slowly, but surely, increasing in the region and there are a number of established private mediators in the UAE.

“Offshore, certain free zones have their own mediation services, for example, the DMCC mediation centre.  The DIFC-LCIA Arbitration Centre can also supervise mediations and has its own mediation rules.”

Cost of resolving a dispute

However, Paul Hughes, legal director at Addleshaw Goddard, warns that pursuing dispute resolution in the UAE doesn’t come cheaply.

“If legal proceedings become inevitable, for onshore claims, local advocates tend to charge based on a percentage of the claim value – from 5-10% with court fees at around 6% of the claim,” he said. “It should be kept in mind that in the onshore UAE courts, there is an automatic right to appeal to two appellate courts so even those defendants with no viable defense can increase the length and costs of proceedings.”

He added that claims in arbitration or the DIFC Courts can be very expensive to run, but there are alternative fee arrangements available including third-party funding, which is becoming more prominent in the region.

Hughes also advises SMEs to “carefully consider the benefit of chasing a debt or claim of less than AED 200,000 [USD 54,400] in the onshore courts because there is no mechanism by which the loser pays the successful party’s costs.  As such, any money spent on that litigation cannot be recovered from your opponent.

“However, for pre-action recovery of relatively small debts, SMEs may be able to take advantage of contingency fee packages, where the law firm shares costs risk with the SME in return for a percentage of the sums recovered.”

Before you apply for dispute resolution

Greaves offers the following tips:

  • Check your jurisdiction clause to see in which forum any dispute will be adjudicated;
  • See if there are any pre-action steps you have to take before commencing proceedings, such as an amicable meeting of CEOs or a mediation;
  • Check whether your opponent has the assets to meet any judgment and whether enforcement will be possible; and
  • Maintain a constructive dialogue with your opponent both before and during proceedings, if possible, to keep the option of settlement open.

Meanwhile, Gracias said it is vital for SMEs to:

  • Assess the value of your claim vis-à-vis the costs involved in dispute resolution, and whether you can recover any costs back and win your claim;
  • Clearly identify your rights, which usually derive from contract or law. Once this is established, claims can be drawn up.

“If a well-drafted contract exists, it is easy to identify parties’ rights, obligations and even remedies. I cannot emphasize enough how much easier and effective dispute resolution would be if effective clauses were drafted into contracts,” she concluded.

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